Title
Refunding of Variable Rate Subordinated Utilities System Revenue Bonds, 2002 Series A and 2002 Series B (NB)
Explanation
The 2002 Series A and B Bonds were issued as variable rate debt in order to refund a prior bond issue and to finance certain of the Utility's capital projects. These Bonds were issued in an "auction rate mode," meaning that the interest rate is reset periodically pursuant to an auction process.
During the past several weeks, many investors have been attempting to sell their holdings in auction rate securities but there has been insufficient demand on the part of other investors to purchase such holdings, which has resulted in many auction rate programs (including the 2002 Series A and B Bonds) experiencing failed auctions. As a result, the interest rates on auction rate bonds (including the 2002 Series A and B Bonds) have increased substantially from historical levels. While the auction rate market had functioned well for roughly 20 years, most market participants feel that the auction mechanism may never return to its position as the lowest cost variable-rate debt alternative for municipal issuers.
On February 25, 2008, the City Commission authorized (1) the refunding of the 2002 Series A and B Bonds through the issuance of fixed-rate bonds; and (2) the termination of a floating-to-fixed interest rate swap entered into with Merrill Lynch Capital Services, Inc. in connection with the issuance of the 2002 Series A Bonds (the 2002 Series A Swap Transaction).
At that time, long-term interest rates generally were at or below their long-term averages, so Utilities staff, in consultation with our Financial Advisor, determined that it was appropriate to convert the 2002 Series A and B Bonds to fixed-rate debt through the issuance of fixed-rate refunding bonds, in order to prevent the 2002 Series A and B Bonds from experiencing further failed auctions in the future and, accordingly, to bring certainty to the Utility's future debt ...
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